According to news reports, the Department of Consumer Affairs (DCA) had served notice to the Financial Technologies-promoted NSEL (National Spot Exchange of India) based on the Forward Market Commission (FMC) findings of trading violations as far back April 27, 2012. Despite this, less than three months later, capital markets regulator, Securities and Exchange Board of India, (Sebi), accorded approval to the same FT-promoted MCX SX to set up a full-fledged stock exchange.
Remember, Sebi had originally rejected MCX’s application on the grounds that the promoters had entered into questionable arrangements to comply with Sebi’s MIMPS (manner of increasing and maintaining public shareholding) regulation. While rejecting MCX application for setting up a full-fledged stock exchange, Sebi’s then wholetime member KM Abraham in his order of 6 September 2010, observed, ‘The Applicant has been dishonest in withholding material information on arrangements regarding the ownership of shares of its shareholders and therefore has not adhered to fair and reasonable standards of honesty that should be expected of a recognised Stock Exchange.’
Abraham was categorical; the promoters did not satisfy the ‘fit and proper’ criterion. But less than two years later, in July 2012 to be precise, Sebi back tracked and gave MCX permission to start its full-fledged exchange.
Granted, the Supreme Court had directed Sebi to re-examine MCX’s application. But should a mere commitment from the promoters to reduce their shareholding in the exchange have sufficed for the regulator to change its stance? Should the fact that another (commodity) exchange - with the very same promoters - was already under a cloud have made Sebi pause? Was Sebi even aware of the problems at NSEL while granting approval to MCX-SX? We have no information.
What is undeniable is that the authorities seem to have slept on the job in the case of NSEL. It is only now, when the horse has bolted, that questions are being asked about the exchange and its promoters. Do they meet the ‘fit-and-proper’ criterion, the sine qua non for any exchange? Were they aware of the gross violations at the exchange? Even as the task force set up by the finance ministry goes into the NSEL debacle, it must extend its probe to beyond NSEL, to MCX-SX as well. And though there is nothing at the moment to suggest otherwise, it is important to ensure the exchange is not in any way at risk and its ownership is entirely ‘fit and proper.’
